Employers who sponsor employee benefits programs understand the importance of maintaining accurate records of benefit eligibility, elections, claims, payments, and other data. Besides complying with ERISA’s record keeping requirements, keeping accurate benefit records is simply a prudent business practice. In recognition of this, employers retain outside service providers such as consultants, third party administrators, insurers, retirement plan record keepers and investment platform providers to help them manage the volumes of data generated in a typical employee benefits program.
However, employers who contribute to multiemployer fringe benefit funds do not sponsor the benefit programs and do not have responsibility for keeping benefit records. Instead, they make contributions to the fringe funds as required by their collective bargaining and other agreements. CBAs typically include a jurisdiction description of the geographic area and type of work (craft) covered by the CBA and for which fringe fund contributions are required.
A recent case from Ohio shows the liability an employer could face by not keeping accurate records of the work it performs. In Wilson v. DM Excavating (6th Cir., February 9, 2021) (not recommended for publication), DM Excavating was subject to a CBA, which required it to make fringe fund contributions “on all hours paid.” The CBA also included a geographic and craft jurisdiction. Following a fringe fund audit of DM Excavating’s records, the funds concluded that DM Excavating had failed to make proper contributions for work performed by a group of employees and filed a lawsuit to collect nearly $200,000 in alleged delinquent contributions.
DM Excavating interpreted the CBA language “on all hours paid” as only requiring contributions for work performed in the jurisdiction of the CBA. DM Excavating asserted that the employees in question performed work outside of the geographic jurisdiction of the CBA and therefore, it did not owe contributions for these employees. However, DM Excavating was unable to produce records showing the location of the work these employees performed. The District Court for the Southern District of Ohio held in favor of the fringe funds and DM Excavating appealed.
In deciding the case, the Sixth Circuit applied a burden of proof shifting principle under which, once a fringe fund produces evidence that an employer is not making fund contributions as required by its CBA, the burden shifts to the employer to produce records showing that the work performed was not within the union’s jurisdiction.
Unfortunately, for DM Excavating, the court determined it did not even have to decide whether the CBA required contributions for work performed outside of the union’s geographic jurisdiction. The court said that because DM Excavating did not produce records showing the location of the disputed work, it had not met its burden to demonstrate that this work was outside the jurisdiction. As a result, the court held that DM Excavating owed the full amount claimed by the fund, plus interest, and liquidated damages.
It is costly enough for employers to make the fringe fund contributions required by their CBAs. Having to make contributions on non-covered work is avoidable with proper planning. Employers who participate in multiemployer fringe benefit funds should review the detail of the records they keep on the work performed by their bargaining unit employees. They should at a minimum be able to demonstrate the type of services performed so they can prove if any work was outside of the union’s craft jurisdiction and where the work was performed so they can prove if any was outside of the union’s geographic jurisdiction. Employers with union workforces should consult with experienced legal counsel on establishing an effective records system. A fresh review of record keeping now can save an employer money and aggravation later.
About the Author:
Jordan Schreier is a Member in Dickinson Wright’s Ann Arbor office and Chair of the Firm’s Employee Benefits and Executive Compensation Practice Group. His practice primarily involves advising both for-profit and non-profit employers on planning and compliance issues involving all aspects of employee benefits, including welfare benefits, qualified retirement, and other deferred compensation plans. He represents employers in connection with multiemployer fringe benefit fund issues. He also serves as legal counsel to many 401(k) and pension investment and administrative committees. He can be reached at 734-623-1945 or JSchreier@dickinson-wright.com and you can visit his bio here.